Mortgage Loan Closing Costs When Buying A Home
Everyone understands down payment, and saving up money for down payment on your new home is generally tough enough. But many first time home buyers are shocked to find out they also need to pay something called closing costs.
You’ll hear many people talk about closing costs as a percentage of your loan amount., and commonly this is expressed as around 3%. The reality is it can vary widely depending on your loan amount, loan type, and loan options chosen.
Any good Loan Officer will discuss with you not only your various mortgage loan programs, but also your closing cost options to structure an overall loan package that work best for you.
What ARE closing costs?
How Do I Pay Closing Costs?
Closing costs are fees and costs associated with getting the loan charged by the various people involved in the transaction:
- Lender fees (origination, underwriting, processing)
State/County taxes (county loan recording fees, state mortgage taxes
- Title company charges (closing fees, title search, title insurance, etc)
- Credit reports
- First years Home owners insurance
- Pro-rated property taxes
- Costs to buy down your interest rate, known as discount points (optional)
These are just some of the costs, which can end up adding up to a thousands of dollars. Sometimes the total is even more than your down payment (on less expensive homes.)
The good news is that while these closing costs can be expensive, in most cases we are able to roll the costs into the loan, thereby seriously reducing, or even eliminating the costs as an out of pocket expense, leaving you back to generally just needing your down payment money.
The main ways of paying closing costs when buying a home are:
- Cash out of your pocket
- Roll it into the purchase price and pay over time (known as seller paid closing costs)
- Roll it into a higher interest rate and pay over time
- A combination of all of the above
- Down payment and closing cost assistance loans
The most common route is #4, a combination of all of the above.